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Is health spending worth the money?

November 2, 2010 at 6:00 am

Austin Frakt

The following can both be true or false independently: (1) The benefits that result from what we (in the U.S.) spend on health care outweigh the cost. (2) We could be more efficient with that which we spend on health.

I tend to focus on the second of these. David Cutler is concerned about that too, but the focus of his 2004 book Your Money or Your Life: Strong Medicine for America’s Health Care System is on the first. Cutler makes the case that we obtain a net benefit for our health spending by examining care at the beginning of life, for mental health, and for cardiovascular disease. For each type of care he illustrates that the monetized value of increased lifespan exceeds the cost of care. Then he illustrates how that monetized value of life extension derived from the care for those three types of conditions exceeds the cost of care for all conditions, thus making it plausible that overall health spending is worth the cost.

As Cutler notes, this does not mean there is no room for improvement. We can extract more value from health spending. In particular, some very low-cost interventions could dramatically increase value. For instance, outreach to encourage individuals to maintain their prescribed regimen or adopt healthier lifestyles would likely increase health dramatically at very low cost. Such interventions are rarer than they should be because they are not promoted by payment systems. For instance, physicians are generally not reimbursed for phone or e-mail consultations.

Expensive though it is, it’s likely that additional spending on some (though not all) new medical technologies is worth the money. We have the capability to determine those for which it is and is not, though typically only after the technology exists. We should exploit that capability to the fullest.

The U.S. health system also suffers from misuse of care (mistimed or misapplied care that would be appropriate in other circumstances) and under-use of care, a pervasive problem that is particularly acute for the uninsured. The ACA attempts to address the problem of under-use through expansion of insurance coverage.

The philosophy behind the ACA is consistent with Cutler’s argument. If health care really is as valuable as he illustrates, we should be expanding access to it, which requires subsidization of care for those who cannot otherwise afford it. That brings us to how much we can afford and how we can or should finance that which we choose to spend. Cutler argues that putting a greater burden on individuals is neither possible in general (some can’t afford it), nor likely to improve health (the more out-of-pocket liability the less care is used). He is not a proponent of single payer systems because he is less interested in controlling health care costs than in improving the value for what we spend. (It isn’t crystal clear from his book that a single payer system can’t achieve his goals, however.)

Unless we dismantle or scale them back, we have three choices in how we address the problem of financing public insurance programs: (1) increased taxation, (2) increased debt, or (3) decreased cost per unit of care financed. In contrast to Joe Newhouse, who thinks the only solution in the long term is (3), bending the cost curve, Cutler believes we can and will increase the amount we spend on care with taxpayer funds, choice (1). It’s hard to believe this country will accept higher and higher levels of taxation. On the other hand, it is equally hard to believe we’ll significantly bend the health care cost curve. Of course they’re not mutually exclusive. Cutler and Newhouse could both be right.

Likely they are. Health care is valuable and, so, it is reasonable to spend more on it. The real debate is over who should pay for it and whom should that spending benefit? There’s no right answer to those questions. I’m of the opinion that the benefits of health care should be broadly enjoyed. I support coverage expansions and the subsidies that they require. That means either higher taxes of some type (income, the Cadillac tax, a value added tax, etc.) are required for those who can afford it, or we must cut back on government spending in other areas, or a combination of both.

But there are limits. Again, one can debate what the limits ought to be. Once we reach the limit of the extent of taxation and reallocation of government expenditures we’ll tolerate, the rate of increased spending on health care will have to slow down. It is quite possible we’ll go several more decades before such a moderation of spending begins. It is quite possible that’s a good thing. Cutler seems to think so. He’s not easily proven wrong.

Austin
I am lost. Perhaps space limits how much you can say re: Cutler’s positions.

On longevity, or what he calls increased lifespan, we are not at the top of the leader board. Adding to that, mental health services, even for those with access, is suboptimal in US, access for healthcare early in life getting better, and cardiovascular health probably a success.

With that in mind, what evidence is he using that dollars spent are more important that what we are getting for our money–when in fact, we have not done that well.

If we were to extract more value and target it into those three buckets, maximize efficiency in those areas, than move on to spend more I would understand, but I dont get the logic.

Is he happy with our performance? [somewhat rhetorical
–I have heard him speak, and know he is not, but still, what gives?]

@Brad F – Go back to the first sentence of the post. Let’s put it this way. Suppose you spend $100 on an item (anything, though think of health care if you wish). Suppose your monetized value (consumer surplus, monetized QALY, whatever) is $500. You’re $400 better off. In that sense, you’d be a fool not to spend the $100. That’s Cutler’s main point.

However, that does not mean $100 is the efficient price. Maybe it is inflated due to monopoly power of the vendor. Maybe there’s all sorts of waste in there. Perhaps the “true” (marginal) cost is $50. Thus, you “wasted” $50. Cutler would agree with that too.

On balance, should we spend more on health care or not? Should we waste $50 to gain $400? Cutler says we should, though he’d rather not waste the $50 and neither would I.

Well I do not see were he address the question of the marginal health care. Are that last dollars spent on healthcare effective. Your post on prostate screening give an example were the answer is no.

Further almost all our purchases yield consumer surplus. Do we help a poor person more by giving the, cash or health insurance. Keep in mid that cash spent on things other than health care can extend life. E.g. a newer better vehicle can save lives just as much as medical care can.

If vaccinations costed as much as all health care of course we would do well to spend the money. Drugs for the mentally ill also yield huge benefits but they are not what we spend so much on. Thank God, they are cheap. Heart bypass is on the other end and may not be worth the cost. You cannot justify the spending on heart bypass because you have so much surplus in the other 2.

@Floccina – Is it Cutler’s reasoning or my summary of it? Did you read his book? I don’t agree with everything in it myself. However, I do believe the benefit I’ve received from health care outweighs the dollars spent on it. As you point out, that’s an analysis of the average effect, not the marginal effect.